Use of Free Car Lands Tom Daschle in Tax Trouble

ROBERT PEAR

Saturday

Jan 31, 2009 at 5:17 AM

The nominee for health and human services failed to pay more than $128,000 in taxes, mostly for free use of a car and driver, officials said.

WASHINGTON — President Obama’s pick for health and human services secretary, Tom Daschle, failed to pay more than $128,000 in taxes, partly for free use of a car and driver that had been provided to him by a prominent businessman and Democratic fund-raiser, administration officials said Friday.

Mr. Daschle, concluding that he owed the taxes, filed amended returns and paid more than $140,000 in back taxes and interest on Jan. 2, the officials said.

The car and driver were provided by Leo Hindery Jr., a media and telecommunications executive who had been chairman of YES, the New York Yankees regional sports network. In 2005, Mr. Hindery founded a private equity firm known as InterMedia Advisors. Mr. Daschle was chairman of InterMedia’s advisory board.

In a financial disclosure statement filed this month with the Office of Government Ethics, Mr. Daschle reported that he had received large amounts of income from InterMedia, including more than $2 million in consulting fees and $182,520 in the form of “company-provided transportation.”

The belated tax payments help explain delays in the confirmation of Mr. Daschle, a former Senate Democratic leader who had been expected to win swift approval. Despite the embarrassing admission, the second for one of Mr. Obama’s cabinet choices, the White House and Democratic senators issued statements on Friday supporting Mr. Daschle.

In an e-mail message, Mr. Daschle referred questions to Jenny Backus, a spokeswoman for the Health and Human Services Department. Ms. Backus said that he had cooperated with the Senate Finance Committee, was answering its questions and expected to be confirmed.

It was not immediately clear whether Mr. Daschle’s tax problems would derail his nomination. The confirmation of Treasury Secretary Timothy F. Geithner was held up only briefly after the disclosure that he had failed to pay more than $34,000 in taxes owed to the federal government.

On Friday, members of the Finance Committee received a report on the vetting of Mr. Daschle, done by members of the committee staff from both parties. The report says that he paid back taxes and interest totaling $32,090 for 2005, $38,507 for 2006 and $69,570 for 2007.

The Finance Committee document said Mr. Daschle had amended his tax returns to show “unreported income from the use of a car service in the amounts of $73,031, $89,129 and $93,096 in 2005, 2006 and 2007, respectively.”

An administration official said Mr. Daschle’s failure to pay the taxes was “a stupid mistake.” But, the official said, Mr. Daschle should not be penalized because he had discovered the tax liability himself, paid up and brought it to the committee’s attention.

The committee report said, “Senator Daschle filed the amended returns voluntarily after Barack Obama announced his intention to nominate the senator to be the secretary of health and human services.”

The committee report said Mr. Daschle had told the committee staff that “in June 2008, something made him think that the car service might be taxable, and he disclosed the arrangement to his accountant.”

“Under Section 132 of the Internal Revenue Code, the value of transportation services provided for personal use must be included in income,” the report said. “Senator Daschle estimated that he used the car and driver 80 percent for personal use and 20 percent for business.”

The car and driver were not Mr. Daschle’s only problems. The Finance Committee said he failed to report consulting income of $83,333 on his 2007 tax return and overstated the deductions to which he was entitled for charitable contributions from 2005 to 2007. In his amended tax returns, he reduced the deductions by $14,963.

Under his consulting arrangement with InterMedia, the report said, Mr. Daschle received $1 million a year, or $83,333 a month. The payment to Mr. Daschle for May 2007 was omitted from the annual statement of income sent to him by InterMedia. Ms. Backus said the omission resulted from “a clerical error by InterMedia.”

The White House and the Senate majority leader, Harry Reid, Democrat of Nevada, affirmed their support for Mr. Daschle.

James P. Manley, a spokesman for Mr. Reid, said: “Senator Daschle will be confirmed as secretary of health and human services. He has a long and distinguished career in public service and is the best person to help reform health care in this country.”

The tax problem is the latest road bump for Mr. Obama’s cabinet selections. His nominee for commerce secretary, Gov. Bill Richardson of New Mexico, withdrew his name amid a federal investigation into state contracting, and Mr. Obama has yet to name a replacement. His designated attorney general, Eric H. Holder Jr., has also not been confirmed.

Mr. Hindery and family members have contributed money to many Democratic candidates, including at least $42,000 to Mr. Daschle from 1997 to 2004.

Mr. Daschle is still waiting for the Finance Committee to hold a hearing on his nomination. Members of the committee staff from both parties have been examining a number of other issues, including his relationship with EduCap, a student loan company.

Some members of the staff have also been asking whether Mr. Daschle should have registered as a lobbyist while working at the law firm Alston & Bird, which itself was registered as a lobbyist for EduCap and for many health care companies.

In his financial disclosure report, Mr. Daschle said he received compensation of more than $5,000 for providing “policy advice” to EduCap. The exact amount was not disclosed.

In reports to the Internal Revenue Service, EduCap says it does business as the Catherine B. Reynolds Foundation. The foundation is the principal underwriter of annual meetings held by the American Academy of Achievement, which has honored Mr. Daschle on several occasions.

In its report, the Finance Committee said its staff was still reviewing “whether travel and entertainment services provided to the Daschles by EduCap Inc., Catherine B. Reynolds Foundation” and the Academy of Achievement “should be reported as income.”

In his financial disclosure statement, Mr. Daschle said he had received $2.1 million in “wages and bonuses” from Alston & Bird and more than $390,000 for speeches to groups like America’s Health Insurance Plans. He also said he had received more than $5,000 for giving “policy advice” to the insurer UnitedHealth.

An aide to Mr. Daschle said he had been preoccupied in recent days with the need to help a brother who was being treated for a brain tumor.

Asked about the delay, Carol Guthrie, a spokeswoman for the Finance Committee, said, “There’s been a lot on the committee’s docket.”

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